Lets use health care as the example here since it's so popular in the news.

*note image does not reflect example.

A catastrophic coverage plan with a huge deductible, say $10,000 gives you a very low premium indeed. Compare that to a typical HMO plan with co-pays, ER costs, and medication and a low deductible and you'll see a much higher cost. $50 per month vs $400 per month. If you have $10,000 in the bank, or an an HSA then you can go ahead and get the high deductible cost and save yourself $350 each month.

Obviously there are plenty of others; the ability to buy decent clothing, the ability to purchase quality windows, etc. Just using the three examples above lets take a look at how much the better off can save vs the less fortunate.

car: $25,000 at 5% over five years will cost you between 35-40k depending on the bells and whistles.

If you pay yourself $500 a month and invest that, you'll have that money in cash at the end of five years, buy a car in cash and keep the leftover 10-15k. [3]

Insurance: In the above example that's 21,000 over five years (350 a month)

SEER vs EER: According to my power bill I use 9600 kwh a year, which is 32.75 MBTU.that's $3260 vs $2120 (rounded)

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So by being able to simply afford the more expensive option (in the case of health coverage the riskier option) over the course of five years one could conceivably save 61,000.

Think about that. The ability to save over $12,000 a year for no reason other than the ability to purchase more expensive options.

This obviously is predicated on the idea of being in an income where such things are an option in the first place. People who make minimum wage don't have mortgages, nor generally do they drive 25k cars and have solid health insurance they pay for themselves.

(out of curiosity I ran that $1028 figure through a simple compound interest calculator to see what it comes to after five years.)

Current principal: $0Annual addition: $12,340years to grow: 5Interest rate: 7% [4](for simplicity making additions one time at the start of each compounding period)

It's taken a while, but over the last few years I've actually started to develop self-discipline and some decent money skills. I've already crossed one break-even point -- If something happened to Me, the estate could pay all debts (including the mortgage balance) out of the various savings accounts and retirement accounts, and have cash left over. (Net worth is even higher, as the house itself is worth at least $200K and the car will be paid off by the end of January.) This isn't counting life insurance, which I get as part of the group plan at work -- At least another $70K there, although it technically belongs to My beneficiary.

It wasn't always that way. I've done most of the execrably stupid things that people manage to do to their finances -- Letting a credit card run too high, and having to take out a lower-interest bank loan to pay it off; buying furniture and appliances on "No payments for 90 days!" plans and going into an utter panic on day 89 when I realize the balance is due; and, in general, just buying too much Stuff.

I started small -- Using income tax refunds to pay down principal on loans; a savings bond, $20 per paycheque, financed largely by making coffee in the office rather than hitting Starbucks every morning; a savings account where I have to go down to the credit union to make withdrawals, and can't just transfer the money electronically into the chequing/debit card account and spend it.

Now I can start buying the Good Stuff, without resorting to a credit card (although I have one with the lowest possible balance I could get, $500, in case I need to rent some equipment or check into a hotel). There does seem to come a point where saving ceases to be a burden and becomes second nature (and even fun), but at the beginning it's frustrating to let money just sit there, rather than rushing out and spending it.

I think "rushing out and spending it" is part of the problem: Everyone seems to be in an incredible hurry to divest themselves of what little disposable income they have, piling into the car with spouse and kids and rampaging through the malls and bringing home too much of everything, every time. Developing patience and learning how to ask "Do I really need this?" may be necessary precursors to getting out of the trap.

I have to agree. Early discipline is the hardest part. The second hardest part is once you get appreciable amounts to NOT buy the things you've always wanted but couldn't afford.

In my own case it was done through simple debt stacking, where you combine ALL of your debts, and the 'extra' payments you make on each into two lumps. Use the full acceleration amount on the first item in your debt list, add the payment you used to make on that to your acceleration amount and move on to the next item. Rinse repeat.

It makes a snowball effect. Now we're paying roughly double our home mortgage which cuts it in half time wise and... in theory can save a couple hundred thousand on accumulated interest payments, not to mention owning the house outright before retirement.

We save right around 20% of our total income right now, in a combination of accounts (two retirement accounts and a short term account for purchases 3-5 years down the road as per the car example above). As with you, not counting insurance which is... rather more.

It's not all peaches and cream just yet, and unlike you we're not above the break even point of savings vs debt... but it'll happen barring an alien attack.

It's crazy though, isn't it how simply having money enables you to save money that you'd otherwise have to spend just to keep treading water?

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Give a man a fire, and he'll be warm for a night. Set a man on fire and he'll be warm for the rest of his life.

I have to agree. Early discipline is the hardest part. The second hardest part is once you get appreciable amounts to NOT buy the things you've always wanted but couldn't afford.

Yup. If I were My younger self I'd have already taken out a loan to upgrade My clarinet to a pro or semi-pro model (which generally cost $3-5 grand). Now I'm getting "Clara II" an occasional tune-up at the repair shop while I save up for Clara III instead.

And no more drive-by purchases of other musical goodies, either -- Although that's exactly the kind of thing that led Me to take up the clarinet 10 years ago. (Mind you, that first instrument was a 10-year-old return from high school band rentals, $79.95, and I did pay cash for it. Probably the best $79.95 I ever spent. )

There are different kinds of clarinet? I thought it was a standard 'instrument'.Not to overly derail, but what makes a fancy clarinet? Is it a superficial thing, or just a quality of product thing? [1]

I'm still in the process of dealing with my debts. In my case, the real killer is student loans - my other debts can easily be paid off in a couple of years, but I'm looking at decades - at best - to pay off the student loans, even once I'm able to keep up with interest.

EDIT: I've already done several other things - a couple inadvertently, but I'm not going to scoff at serendipity - to help. I bought myself budgeting software so I can actually track where my money is going, which is helping me plan better. I'm contributing to a retirement fund at work, and I'm also having a small amount of money per paycheck deposited straight to my savings account (which is at a different bank than my checking account). I'm also focusing on only buying what I can afford, and if it goes on a credit card, paying the extra balance off before it hits the next payment period. Aside from those student loans, I'm largely on top of things.

That's great! When I sit down and meet with people to help them draw up a plan, the first thing that sticks out is whether or not they have a budget and know where their money gets spent. It varies by family though. Some need to know every single penny, others just do the 'allowance' thing.[1]

Good move on putting your savings away from the checking, out of pocket out of mind, so to speak. As I mentioned above, I do the same thing, though with investments since my savings is at 3 months (ish) buffer.

If you have no debt other than your student loans (eg: car financing, store credit cards, so on and so on) and you're unable to accelerate your student loan you might want to do a '90 minute challenge' which is to go through all the things that you pay for, internet, phone, car insurance, credit card and so on and see if you can lower the rates and payments. Use the offset to pay off the loan more quickly.

Let me give you an example: I helped a co-worker lower his auto insurance by about $80 bucks a month. When I did that, I told him: "Add the 80 bucks to your monthly car payment. Your budget will feel unchanged but the car will get paid off sooner." In my own case, I did the math and came up with 'every 400 bucks knocks a week off my mortgage', or a month off my wife's new car. Figure out what the monthly increments equate to for your loans and then when you add an extra XX a month you'll know 'I cut XX days from that loan'.

There are different kinds of clarinet? I thought it was a standard 'instrument'.Not to overly derail, but what makes a fancy clarinet? Is it a superficial thing, or just a quality of product thing?

Mostly a quality thing. The "standard" B flat clarinet comes in all kinds of materials, from cheap plastic to good-quality synthetics to exotic hardwoods, and the key mechanisms are better made at the high end. You can also spend a fortune trying out different mouthpieces and other small parts, and there are people who custom-manufacture them as well. I'm currently playing a good-quality "student" model, a Yamaha 250, which was a definite improvement over the first clarinet I owned.

There are a few other members of the clarinet family, too: A smaller E flat clarinet (looks like a toy clarinet), an alto clarinet (obscure and rarely used), bass clarinet, and contrabass clarinet (uncommon, but sometimes seen in large bands and orchestras). The only one that you're likely to have seen is the bass clarinet (it has an S-bend with the mouthpiece curving down and the bell curving up, and is supported by a metal peg on the floor. The contrabass is similar, but about 4 times the size, and the player has to sit on a tall stool to play it. The alto clarinet looks like a smaller, skinnier bass clarinet.

All of my money goes to booze, women, and golf. The rest I just waste.

Unfortunately, I'm being mostly serious here, although I do put a double digit percentage of my pay into a 401k. But the money I spend on my 3 favorite things do keep me living paycheck to paycheck, and sometimes beyond my means, which just came back to bite me in the ass something fierce. But, such is the dilemma of being single.

It was much easier to budget, and save, when I was married as I had other things to occupy my time, and keep me entertained.

The separate savings account tied to direct deposit works quite well tho, good advice. I always used mine for vacations and hobbying, and was usually sufficient to keep me afloat if an emergency occurred. As does making the extra payment on the house or car, and shortening the loan duration and interest payment.

Weekly allowances, I think, are the way to go, but mine only work if I use cash. I cant be diligent or responsible enough to use plastic; it's too easy to lose track of the spending. YMMV.

I do have debt other than student loans, though. It's only a fraction of it, all told (something like 12-15% of the total cost of my student loans). Once I get my other debts paid off (one will be paid in less than a year, the credit cards are less predictable, but I should be able to get them paid off in a couple years, barring having expenses I'm not expecting and can't afford to pay out of pocket), increasing what I pay on student loans should be much easier.

Right now what I'm focusing on with the budgeting software is making sure I track every expense, so that I know what I'm actually spending. I had a bad habit of spending a few dollars here, a few dollars there on a credit card, and eventually it got to be a fairly substantial amount of money. I'm mostly over that habit, but catching myself doing it is much easier when I know exactly what I'm spending my money on.

Actually, I might as well get an opinion on this. I got an offer from one of my credit cards, one of those "debt consolidation" things, with no interest charged until March 2015. I know better than to think that it's free money, but I'm thinking of using it to nail down the debt on my other credit card and get it all in one place, and I wanted to ask what you thought of that idea.

If the average interest rate of all your cards is less or the same as the interest rate on that new one there is literally no point.No point, other than having less paperwork really. Also keep an eye out for how it's calculated. [1]

The tool I use for people is called a 'debt stacker' which just stacks all the debt up, interest rates, min payment etch and gives an order to pay them all off in.

So, I assume you meet all the minimum payments, and then add a little extra to each to get them paid off? (this is pretty typical). What you would do is stack them all up, add up all the 'extra bits' and use that to pay off one card. Use the previous minimum on that card and add it to the new payoff amount and apply it to the second card, pay that off, use that minimum added to the acceleration amount for the third, so on and so on.

Doing it that way, you're slightly better off with several smaller cards since you can pay them off reasonably quickly and move on to the next with a higher pay off amount. And probably cancel them with the final payment. Always a good feeling as they beg you to stay and you tell them; Sorry babe.. ahem, Home Depot, I just don't need you any more.[2]Alternatively if you consolidate them all into a single account, make sure you know what your final acceleration amount should be (per your budget). Don't forget that you need some kind of credit card though, to rent stuff, and keep your credit score happy. (those bastards). For that, I suggest a secure card with a hard limit on it that reports to all three credit agencies. Use it where you would use cash (groceries, gas etch) and make sure it's set to pay off every month, as though you were using cash.

There are different kinds of clarinet? I thought it was a standard 'instrument'.Not to overly derail, but what makes a fancy clarinet? Is it a superficial thing, or just a quality of product thing? [1]

Not like I have room to talk, I used to 'play' an accordion (in a marching band no less.)

There are different kinds of any instrument. Definitely a lot of difference in the quality of tone you are going to get with a professional model clarinet. Our younger son plays clarinet also, and we did invest in a professional quality instrument (which did set us back about $4000. when he was about 17 and it was clear that music was going to be something he would always be involved in. Ever since he took it up in the 6th grade, he was constantly getting picked for all the select groups, All-State band, etc. He clearly loved it, and we felt that the buying him an instrument which could give him the best response, and making sure he had good teachers would ultimately make a difference in how far he went with it. He did end up getting a music scholarship (about 1500/year) without being required to major in music, so whether or not the clarinet made the difference, it has paid for itself. He's also playing first chair despite the fact that he is the only clarinetist in the school orchestra who is not actually a music major. We are going to go hear one of their concerts in March...I haven't heard him play with a group since he started college, as he is in North Dakota and we are in Connecticut, so it's not really feasible to trek out there for concerts... but he'll be graduating this year (his 5th), so this will be pretty much our last chance, and he's going to have a few solos. Can't wait! ( proud Mommy mode!).

A financial website I subscribed to did a comparison. They assumed two people whose jobs and incomes were parallel through their lives, chose some standard purchases (TV, stereo, etc), and worked out the comparison between someone who always bought on credit, and someone who always saved and bought outright.

For the first few years, the person buying on credit had more stuff than the other. But arounf the age of 30, the person buying on cash overtook the credit-buyer, and thereafter always had newer, better stuff and more spare income. So yeah - delayed graitification reaps long-term rewards.

There are different kinds of clarinet? I thought it was a standard 'instrument'.Not to overly derail, but what makes a fancy clarinet? Is it a superficial thing, or just a quality of product thing?

Mostly a quality thing. The "standard" B flat clarinet comes in all kinds of materials, from cheap plastic to good-quality synthetics to exotic hardwoods, and the key mechanisms are better made at the high end. You can also spend a fortune trying out different mouthpieces and other small parts, and there are people who custom-manufacture them as well. I'm currently playing a good-quality "student" model, a Yamaha 250, which was a definite improvement over the first clarinet I owned.

There are a few other members of the clarinet family, too: A smaller E flat clarinet (looks like a toy clarinet), an alto clarinet (obscure and rarely used), bass clarinet, and contrabass clarinet (uncommon, but sometimes seen in large bands and orchestras). The only one that you're likely to have seen is the bass clarinet (it has an S-bend with the mouthpiece curving down and the bell curving up, and is supported by a metal peg on the floor. The contrabass is similar, but about 4 times the size, and the player has to sit on a tall stool to play it. The alto clarinet looks like a smaller, skinnier bass clarinet.

Don't forget the ones that look like tiny saxophones. I think they are E flats, too. I remember in college for a period of time my cheapo Bundy mysteriously disappeared and I got to borrow a nice wooden one. It was so nice to play. Then mine strangely showed back up.

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It doesn't make sense to let go of something you've had for so long. But it also doesn't make sense to hold on when there's actually nothing there.

A financial website I subscribed to did a comparison. They assumed two people whose jobs and incomes were parallel through their lives, chose some standard purchases (TV, stereo, etc), and worked out the comparison between someone who always bought on credit, and someone who always saved and bought outright.

For the first few years, the person buying on credit had more stuff than the other. But arounf the age of 30, the person buying on cash overtook the credit-buyer, and thereafter always had newer, better stuff and more spare income. So yeah - delayed graitification reaps long-term rewards.

Sure, the problem is, when you can't afford to delay. Things like TV's, fancy phones etch... yeah anybody can live without them. But the ability to purchase better stuff only comes with resources. Like my health care example. If you can afford a super high deductibles you can get super cheap premium which saves you a metric ton of money every year. But if you can't afford the high deductible you can't take advantage of the hidden savings. Costing you a metric ton of money every year that you can ill afford.

Kind of a catch 22.

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Give a man a fire, and he'll be warm for a night. Set a man on fire and he'll be warm for the rest of his life.

Sure, the problem is, when you can't afford to delay. Things like TV's, fancy phones etch... yeah anybody can live without them. But the ability to purchase better stuff only comes with resources. Like my health care example. If you can afford a super high deductibles you can get super cheap premium which saves you a metric ton of money every year. But if you can't afford the high deductible you can't take advantage of the hidden savings. Costing you a metric ton of money every year that you can ill afford.

Kind of a catch 22.

Not to make light of the situation but...pun intended???

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It's one of the reasons I'm an atheist today. I decided to take my religion seriously, and that's when it started to fall apart for me.~jdawg70

Sure, the problem is, when you can't afford to delay. Things like TV's, fancy phones etch... yeah anybody can live without them. But the ability to purchase better stuff only comes with resources. Like my health care example. If you can afford a super high deductibles you can get super cheap premium which saves you a metric ton of money every year. But if you can't afford the high deductible you can't take advantage of the hidden savings. Costing you a metric ton of money every year that you can ill afford.

Oh yeah - I quite agree, I was only talking about non-essentials really.

But as you say, it applies to essentials, and quality of essentials too. Terry Pratchet called it "Sam Vimes Economic Theory of Boots", and it went something like this.

Sam Vimes stood in the rain in his leaky one-dollar boots. The leaky, cheap boots were all he could afford. He HAD to have boots, but all he could afford were ones that leaked from day one and fell apart a few weeks later. He reckoned that over the years, he had spent over four hundred dollars on boots. A rich man, he mused, would have paid two hundred for an excellent pair that would have lasted his whole life and - importantly - didn't leak.

The difference between rich and poor, Sam mused, was that the poor always up spending more on their boots, but still always had wet feet.